Plaintiffs
React Presents, Inc., Clubtix, Inc., Lucas King, and Jeffrey
Callahan (collectively, “React”) filed their
one-count Complaint in this diversity action on March 29,
2016, alleging breach of a Guaranty executed by Defendant
Robert Sillerman. See Dkt. 1. Sillerman filed his
Answer, Affirmative Defense, and Counterclaim on May 27,
2016, alleging “that the React Parties fraudulently
manipulated the financial information upon which the Gross
Earn-Out Payment, ” which ultimately triggered
Sillerman's Guaranty, “was calculated.”
See Dkt. 13-1, at 8-12. Now before the Court is
React's Motion to Strike Affirmative Defense and Dismiss
Counterclaim, contending that Sillerman's Guaranty and a
“Reaffirmation” thereof “foreclosed
Sillerman's ability to raise any fraud-based
defense.” See Dkt. 22, at 2. For the reasons
below, React's Motion to Strike and Dismiss is denied,
and React is granted 21 days to answer Sillerman's
now-amended Counterclaim.

BACKGROUND

As
required for a motion under Fed.R.Civ.P. 12(b)(6), the Court
assumes the following allegations in Sillerman's
Counterclaim to be true. The Counterclaim explains that
Sillerman's Guaranty evolved out of an acquisition of the
operations of Plaintiff React Presents, Inc. (the
“React Business”) by two non-party entities, SFX
Entertainment, Inc. and SFX-React Operating LLC (collectively
referred to herein as “SFX”). See Dkt.
13-1, at ¶¶ 19, 38. This transaction was effected
by an Asset Purchase Agreement dated February 18, 2004, by
and among SFX, the React Business, and the remaining
Plaintiffs in this action-Clubtix, Inc., Lucas King, and
Jeffrey Callahan. Id. at ¶ 19.

According
to Sillerman's Counterclaim, the React/SFX Asset Purchase
Agreement provided for SFX to acquire the React Business for
$12, 216, 903 in cash and stock, “plus a ‘Gross
Earn-Out Payment' of 6.25 times the difference between
the Proportionate Adjusted EBITDA for 2014 and the
Proportionate Adjusted EBITDA for 2012, as defined and set
forth in Section 2.8 of the React Purchase Agreement.”
Id. Pursuant to this Agreement, in April 2015, an
“Earn-Out Statement” was provided to React which
showed a “proposed Gross Earn-Out Payment” in
excess of $14 million. Id. at ¶ 22. Then on
July 7, 2015, React and SFX “agreed to a Gross Earn-Out
Payment amount of $14, 732, 665.13, of which $11, 829, 353.13
was payable in cash with the balance in SFX stock, ”
and a “payment schedule was also specified for the cash
portion of the outstanding amount, ” since “SFX
had already paid $1 million of that amount, leaving $10, 829,
353.13 purportedly outstanding.” Id.

Also on
July 7, 2015, SFX executed a “Subordinated Note”
in the principal amount of this alleged balance ($10, 829,
353.13), and Sillerman simultaneously executed and delivered
to React a personal Guaranty “of all amounts due under
the Note, including interest and enforcement costs, up to a
maximum of $7, 000, 000.” See Dkt. 13-1, at 3,
¶¶ 8-9. This Note required SFX to pay React $1
million by July 21, 2015; $2 million by September 1, 2015; $2
million by November 2, 2015; and $3 million by January 4,
2016. Id. at 4, ¶ 11. But on November 4, 2015,
due to certain “cash flow problems at SFX, ” SFX,
Sillerman, and React “entered into an Amendment and
Reaffirmation of Guaranty and Promissory Note
(‘Reaffirmation Agreement'), which extended the due
date of the third installment of the Note from November 2,
2105 to December 1, 2015, and increased Sillerman's
liability under the Guaranty from $7, 000.000.00 to $7, 829,
353.13.” Id. at ¶ 12, and 8, ¶ 24.

React
alleges in its Complaint in this action (and Sillerman does
not dispute) that SFX “failed to make the $3, 000, 000
Note payment due on January 4, 2016, ” id. at
4, ¶ 13, and that on January 13, 2016, the React parties
therefore sought and obtained a judgment against SFX in the
Circuit Court of Cook County, Illinois “for all amounts
due under the Note, but have not received payment on said
judgment.” Id. at 4-5, ¶ 14. And React
further alleges (and Sillerman again does not dispute) that,
given this default, “the React Parties have demanded
that Sillerman immediately pay all amounts due under the Note
in accordance with Sillerman's obligations under the
Guaranty and the Reaffirmation Agreement, ”
id. at ¶ 15; but “Sillerman has failed
and refused to pay the amounts due pursuant to the
Guaranty.” Id. at ¶ 16.

React's
Complaint in this action seeks payment from Sillerman under
this Guaranty. See Dkt. 1. Sillerman's
Affirmative Defense and Counterclaim, in turn, allege fraud
in connection with the Earn-Out Statement and resulting
determination of the Gross Earn-Out Payment on which SFX
defaulted, and which ultimately triggered Sillerman's
liability under the Guaranty. Specifically, Sillerman alleges
that the Earn-Out Statement from which the Gross Earn-Out
Payment figure was initially derived was “calculated in
reliance on the financial information provided to SFX by the
React Parties (since King and Callahan supervised the
preparation of those financial records and controlled the
financial activities of the React businesses).”
Counterclaim, Dkt. 13-1, at 7, ¶ 22. According to
Sillerman, “[a]t the time the Gross Earn-Out Payment
amount was agreed by SFX, it had done only a high level
review of the Earn-Out claim and had not undertaken a
forensic audit because it had no reason to believe that the
financial data provided by the React Parties from records
controlled by King and Callahan was materially misleading or
inaccurate, much less fraudulent.” Id. at 8,
¶ 23. But, Sillerman alleges, “[h]ad it known
that, as now appears, those financial results had been
manipulated by King and Callahan, SFX would never have agreed
to the Earn-Out payment amount nor entered into the Note. Nor
would Mr. Sillerman have agreed to the Guaranty.”
Id.

“Now
that additional financial data for the React businesses is
available for 2015, ” Sillerman contends “it is
apparent that the React Parties fraudulently manipulated the
financial information upon which the Gross Earn-Out Payment
was calculated.” Id. at ¶ 26. According
to Sillerman, “millions of dollars of expenses that
should have been recorded in 2014 were instead deferred into
2015, thereby artificially inflating the profitability of the
React business - and the Earn-Out - for 2014.”
Id. at 8-9, ¶ 26. For instance, according to
the Counterclaim, “React's Earn-Out claim is
premised on supposedly beating industry profitability by
between 35% and nearly 200%, ” id. at 10,
¶ 29; but it “now appears that the React business
reported such [an] extraordinary result by pushing millions
of dollars of expenses from 2014 into 2015, thus driving up
the 2014 earnings to achieve a large Earn-Out payment and
correspondingly causing 2015 results to come crashing down,
loaded with enormous expenses that were an overhang from the
prior year.” Id. at ¶ 30. “But for
these fraudulent manipulations, ” Sillerman says, the
Gross Earn-Out Payment would have been zero or close to zero,
rather than the almost $15 million (including $11 million
cash) that the React Parties claim.” Id. at 9,
¶ 26. Thus, according to Sillerman, he “was
fraudulently induced to enter into the Guaranty and
Reaffirmation Agreement on the basis of the false financial
information provided to SFX, and the Guaranty and
Reaffirmation Agreement are accordingly invalid and
unenforceable.” Id. at ¶ 27.

React
now moves to strike Sillerman's fraud-based Affirmative
Defense and dismiss his Counterclaim on three grounds: (1)
that both are precluded by a purported “binding
judicial admission” made by Sillerman's counsel
during a status hearing before this Court; (2) that both are
“foreclosed” by Sillerman's Reaffirmation
Agreement; and (3) that both are inadequately pled,
specifically the requisite element of reliance, and for
failure to allege fraud with particularity as required by
Fed.R.Civ.P. 9(b). See Dkt. 22. The Court addresses
each argument, in turn.

DISCUSSION

I.
Asserted Judicial Admission

React's
first challenge of Sillerman's fraud-based Affirmative
Defense and Counterclaim seizes upon a sentence uttered by
his counsel during a status hearing before this Court. React
argues that “Sillerman is bound by the judicial
admission made by his counsel at the June 7 hearing where he
stated that there is ‘not a question of fraud in the
inducement of the underlying contract.'” Dkt. 22,
at 2 n.1, 7 (citing Dkt. 22-1, at 16). Citing Soo Line
R.R. v. St. Louis S.W. Ry., 125 F.3d (7th Cir. 1997),
React argues that this “constitutes a binding judicial
admission by Sillerman, ” id. at n.1; and
“[o]n this basis alone, Sillerman's Affirmative
Defense and Counterclaim should be stricken and dismissed,
with prejudice.” Id. at 7. The Court
disagrees.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Contrary
to React&#39;s assertions, Soo Line R.R. merely
followed the &ldquo;well-settled rule that a party is bound
by what it states in its pleadings, &rdquo; to hold that the
plaintiff&#39;s complaint contained binding admissions
entitling the defendant to summary judgment. 125 F.3d at 483.
As the court explained: &ldquo;Judicial admissions are formal
concessions in the pleadings, or stipulations by a party or
its counsel, that are binding upon the party making them,
&rdquo; particularly on summary judgment, which &ldquo;is
proper &lsquo;if the pleadings, depositions, answers
to interrogatories, and admissions on file together with the
affidavits&#39; show that one party is entitled to a judgment
as a matter of law.&rdquo; Id. (emphasis in
original, ...

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